Impact of Tariffs on Foreign Direct Investment

Authors

Yang Tian, The College of Wooster

Abstract

This study analyzed the impact of tariffs on Foreign Direct Investment (FDI). Vertical FDI arise due to wage differential between the home and the host country. An increase in tariffs is likely to deter vertical FDI. Horizontal FDI is motivated by tariff- jumping. Higher tariffs set by governments of foreign countries are likely to increase trade costs and motivates a firm to undertake horizontal foreign production to avoid paying tariffs. Thus higher tariffs attract horizontal FDI. The total impact of tariffs on FDI is partially dependent on the relative importance of the two types FDI. We hypothesized tariffs are negatively related to FDI. We apply industrial data and empirically test the hypothesis. We found tariffs are positively related to FDI, although this result is not significant.

Advisor

Roche, Jennifer

Second Advisor

Moledina, Amyaz

Department

Economics; Mathematics

Recommended Citation

Tian, Yang, "Impact of Tariffs on Foreign Direct Investment" (2010). Senior Independent Study Theses. Paper 749.
https://openworks.wooster.edu/independentstudy/749

Publication Date

2010

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis